Pepsi shares lift bottlers' stocks; sector deals likely on Allion bid; Vishay ups sale action

By Cristal Cody

Tupelo, Miss. Oct. 27 - The European Union on Tuesday approved PepsiCo, Inc.'s $7.8 billion takeover of its top-two bottling companies.

Both bottlers' stocks are trading above the bids, reflecting the rise in the value of PepsiCo shares, an analyst told Prospect News on Tuesday.

In other potential situations, an analyst said that more industry deals could be forthcoming on the heels of Allion Healthcare, Inc.'s $278 million takeover.

Also on Tuesday, Vishay Intertechnology, Inc. announced plans to spin off its measurements and foil-resistor businesses into a public company, but the company also said it would consider any buyout offers for the division.

A spinoff or sale would allow Vishay to go after more transactions, an analyst told Prospect News.

Meanwhile, equities were mixed on Tuesday.

The Dow Jones Industrial Average inched up 14.21 points, or 0.14%, to 9,882.17.

The Standard & Poor's 500 index slipped 3.54 points, or 0.33%, to 1,063.41, while the Nasdaq Composite index lost 25.76 points, or 1.20%, to close at 2,116.09.

Pepsi investors pack in value

PepsiCo has offered $36.50 per share in cash or stock for Pepsi Bottling Group Inc. and $28.50 per share in cash or stock for PepsiAmericas Inc.

Somers, N.Y.-based Pepsi Bottling's stock traded more than $1.00 above the bid to end at $37.53 on Tuesday, while Minneapolis-based PepsiAmericas shares closed up 31 cents, or 1.06%, at $29.44.

Lauren Torres, an analyst with HSBC Securities (USA) Inc., told Prospect News on Tuesday that the "confidence in Pepsi shares" is the cause behind the rise in the bottlers' shares "since half of the payout will be in Pepsi shares."

"The shares have been trading above the offer price a while now," Torres said. "Some stockholders will be issued Pepsi shares, so if you think Pepsi shares are undervalued, you're getting more value than the $36.50 a share for PBG and $28.50 per PAS share."

Shares of Purchase, N.Y.-based PepsiCo rose 55 cents, or 0.88%, to $61.00 on Tuesday.

PepsiCo sold the bottlers 10 years ago following a similar move by Coca-Cola Co.

The European Union's antitrust commission said in a release on Tuesday that it cleared PepsiCo's acquisitions because they would not significantly impede competition.

The deal "would lead to the vertical integration of the brand owner and its bottler," the commission said. "As PAS was already bottling, selling and distributing PepsiCo beverages, it is unlikely that the transaction would lead to a significant change in the market structure."

The transaction still requires U.S. antitrust approval.

PepsiCo refiled its antitrust application on Oct. 15 with the Federal Trade Commission. Under the new application, the waiting period is expected to expire on Nov. 16.

"As far as everyone is concerned, it should be over by late this year or early next year," Torres said.

Atlanta-based Coca-Cola shares rose 23 cents, or 0.43%, to $53.46.

Allion to spark deal trend?

Allion said on Oct. 19 that it will be taken private for $6.60 a share in cash by an affiliate of Miami-based H.I.G. Capital, LLC, a middle market private investment firm.

The buyout of the Melville, N.Y.-based HIV/AIDS drug provider includes the assumption of $79 million in debt. The transaction is expected to close in the first quarter of 2010.

More deals in the sector may be on the way.

"This may be the first of a number of health-care services companies taken private as improvement in the credit markets allows the financing of transactions, though at lower leverage multiples than in the past," Mark Arnold, an analyst with Piper Jaffray & Co., said in a research note released to Prospect News.

"The lack of a private equity floor, which has traditionally provided support to health-care services valuations, has led to a number of companies whose valuations over the past year have fallen well below levels we feel are appropriate given the strong cash flow generation of these businesses," he said. "We believe other companies with current market valuations below 6x 2009 EBITDA could also be attractive as potential acquisition targets."

Allion shares fell 1 cent, or 0.16%, to $6.43 on Tuesday.

Vishay open to better offer

Vishay said Tuesday that it plans to spin off its measurements and foil-resistor businesses into a new company called Vishay Precision Group, Inc.

The deal is expected to be structured as a tax-free stock dividend distributed to shareholders. The spinoff is subject to final approval of Vishay's board and favorable market conditions and tax rulings.

Vishay said it is still finalizing details of the spinoff but expects it to occur in the second quarter of 2010.

Felix Zandman, executive chairman of Vishay's board, said Tuesday on an investors conference call that the division does not add much value to the whole company and likened it to a "diamond inside a big mountain" that is "not visible."

Malvern, Pa.-based Vishay said the division generated $179 million in net revenue during the fiscal 2009 year that ended Sept. 26 but is not a core asset. The chipmaker said the spinoff will allow it to focus on semiconductors and passive components.

Vishay executives said on the call that the company believes a spinoff would be less disruptive to customers and employees than a sale, but the board is open to considering any buyout offers.

Shawn Harrison, an analyst with Longbow Research LLC, told Prospect News on Tuesday that a split of the assets could offer potential for Vishay's deal action.

"The semiconductor business has been one of the growth businesses for Vishay. It maybe will allow management to focus more on existing businesses here, and given the good free cash flow the company had over the year, it may allow for some more acquisitions," Harrison said. "Lately, they've been talking about smaller bolt-on acquisitions. That being said, historically they've done a few large deals as well."

Vishay has grown the company through acquisitions going back to its first transaction in 1985. Last year, the company abandoned a hostile attempt to buy out El Segundo, Calif.-based International Rectifier Corp. for $1.7 billion, or $23.00 a share.

Also on Tuesday, Vishay announced earnings for the third quarter ended Sept. 26 were $2.3 million, or 1 cent a share, compared with a loss of $301.3 million, or $1.62 a share, in the same period a year ago. Third-quarter revenue fell to $525.3 million from $739.1 million in the year-ago period.

Vishay shares closed up 32 cents, or 4.66%, at $7.18 on Tuesday.

International Rectifier's stock dropped 76 cents, or 3.85%, to close at $18.99.

Mentioned in this article:

Allion Healthcare, Inc. Nasdaq: ALLI

Coca-Cola Co. NYSE: KO

International Rectifier Corp. NYSE: IRF

PepsiAmericas Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

Vishay Intertechnology, Inc. NYSE: VSH

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